SNDL Inc

F:VY4

Earnings Call Transcript 2024-Q1

[Operator]

Good morning, and welcome to the SNDL's First Quarter 2024 Financial Results Conference Call. This morning, SNDL issued a press release announcing their financial results for the year-end and fourth quarter ended on March 31, 2024. This press release is available on the company's website at sndl.com and filed on EDGAR and SEDAR as well. The webcast replay of the conference call will be also available on the sndl.com website. SNDL has also posted a supplemental investor presentation in addition to the conference call presentation we will be reviewing today on its smdl.com website. Presenting on this morning's call, we have Zach George, Chief Executive Officer; and Alberto Paredero, Chief Financial Officer. Before we start, I would like to remind investors that certain matters discussed in today's conference call or answers that may be given to questions should constitute forward-looking statements. Actual results could differ materially from those anticipated. Risk factors that could affect results are detailed in the company's financial reports and other public filings that are made available on SEDAR and EDGAR. Additionally, all financial figures mentioned are in Canadian dollars unless otherwise indicated. We will now make prepared remarks, and then will move on analysts' questions. I would now like to turn the call over to Zach George. Please go ahead.

[Zachary George, executive]

Good morning, everyone. Thank you for joining us for our first quarter 2024 Financial and Operational Results Conference Call. We are pleased with our performance in the first quarter of 2024, which reflects a positive trajectory for SNDL. The improvement in profitability across all of our operating segments is undeniable, building on a multiyear trend that includes improved revenue in 8 of our last 9 quarters. We are just beginning to inflect at scale and our focus on generating results that showcase the benefits of our diversified strategy, a series of acquisitions and modest organic growth. Revenue growth in our Liquor Retail segment includes the expansion of our private label program and the initial launch of our commercial data offerings. In Cannabis Retail, we saw a strong cash flow in the quarter and recently announced further enhancements to our retail network with an expansion into British Columbia. In our Cannabis Operations segment, we posted record unadjusted results. In fact, we are pleased to report both positive gross profit and operating income in our Cannabis Operations segment for the first time since the company's inception. This result validates the acquisition of Valens and the decision to exit noncompetitive cultivation exposure. The successful integration of Valens over the last 15 months has been crucial to our progress and we are just starting to see the benefits of increased capacity utilization driven by the optionality of our platform and our approach to capital allocation. We believe that the future of the cannabis industry in Canada includes stabilized profits for the strongest licensed producers and manufacturers of products. Looking ahead, we are well positioned to further expand our retail network and enhance product distribution across Canada. We anticipate continued market consolidation, and we are prepared to capitalize on select opportunities to strengthen our market presence. SNDL is optimistic about the slow time of global regulatory reforms that create distinct opportunities in emerging markets such as Germany and Florida, where we have cannabis enterprise exposure. We're even seeing rational regulatory reform in more mature saturated markets like Alberta, Canada. Last week, exciting that the U.S. Drug and Enforcement Agency will reschedule cannabis as a Schedule III controlled substance, promises to improve the credit profile and free cash flow potential of U.S. cannabis operators with a material improvement in permissible tax deductions. This change improves the risk profile of our entire Sunstream portfolio, which has been written down over time to approximately $560 million, including positions that will be equitized in a structured manner compliant with NASDAQ requirements. Two days after it was reported that the DDA would move to reclassify cannabis, SNDL announced the completion of Nasdaq's review of its Sunstream USA structure, marking a significant milestone. The completion of this review creates a pathway to equitize U.S. credits currently under restructuring, positioning SNDL to become a leading global cannabis company. Based on first quarter 2024 revenue, if SNDL were to exercise its conversion rights upon U.S. federal legalization, SNDL's North American operations on a Sunstream USA pro forma inclusive outlook would potentially rank SNDL as a top 5 MSO on a North American basis. SNDL remains steadfast in its commitment to driving long-term stabilized profitability. Following our first ever consecutive quarters of positive free cash flow in 2023, our goal for 2024 is clear. We aim to generate positive free cash flow for the aggregate calendar year. First quarter results exceeded our expectations despite seasonal weakness. This outcome is encouraging, and we remain confident in our path to improvement this year. Our goals imply new all-time records for the SNDL team and success in our mission to bring people together through exceptional products and experiences. I will now pass the call to Alberto for a deeper dive into our financial results for Q1 2024.

[Alberto Paredero-Quiros, executive]

Thank you, Zach. I want to remind you all that amounts discussed today are denominated in Canadian dollars, unless otherwise stated. Certain amounts referred to on this call are non-GAAP and non-IFRS measures. For definitions of these measures, please refer to SNDL's management discussion and analysis document. Looking at our Q1 2024 financial highlights that are a good reflection of our 3 strategic priorities: growth, profitability and people. Net revenue in the first quarter of 2024 reached $197.8 million or 4% growth year-over-year. Growth was driven by our Cannabis Retail and Operations segments, which posted a combined 9% growth, while Liquor remained a stay. Gross profit of $50.4 million represents a 55% growth year-over-year and an impressive 850 basis points of gross margin improvement, mainly driven by productivity improvements and other profitability initiatives that we'll be outlining later in this presentation. This gross margin improvement, coupled with increases in our investment income and reduction in corporate overheads, led to significant improvements in adjusted operating income and free cash flow of 85% and 89%, respectively. These 2 metrics were close to breakeven in the quarter despite the anticipated seasonality. As you may have noticed, we have evolved the financial KPIs we're focusing on. We believe that focusing on operating income and free cash flow is a much better and more transparent way to monitor the financial performance of our business in contrast with other metrics like adjusted EBITDA or adjusted free cash flow. For clarity, note that we only adjust operating income for restructuring, restructuring-related write-offs and intangible asset impairments. Moving to the quarterly historical tracking of main financial KPIs, we see the improvement in Q1 2024 represents, particularly in terms of profitability and free cash flow generation. When we look at specifically at free cash flow, we can see clearly that the first half of the year tends to be lower than the second half, driven by revenue phasing and working capital build. In this context, it's encouraging to see that Q1 2024 is so close to breakeven and a significant improvement year-over-year. We will look at each segment in a few minutes, but it's good to see how each of them is contributing to our growth and profitability priorities. Starting with net revenue, each segment contributed to our growth, particularly our Cannabis Retail and Cannabis Operations segments. The small negative $0.6 million in the Corporate segment is related to the revenue elimination for the Cannabis Operations sales into our own retail. As this amount is growing, so is the amount of revenue elimination. In terms of gross profit, all segments have contributed to growth. The Cannabis Operations segment is showing a significant $12.8 million improvement as a result of our productivity initiatives. This is clearly one of the key highlights in the quarter. I would also like to point out the gross profit growth from our retail segments, which are also seeing good improvement in margin as our profit stability priority is embedded across the entire organization. Moving to adjusted operating income. We see how 3 quarters of this improvement or $19.1 million are driven by the Cannabis Operations segment. Liquor Retail is also contributing with $4.1 million improvement as well as our Investment segment with $4.3 million improvement. In fact, our Investment segment posted an operating income of $13.1 million in the quarter, mainly driven by improved valuations from our Sunstream. Cannabis Retail, while delivering negative $1 million of operating income in the first quarter, is $1 million lower than Q1 2023, driven by a $2.5 million fixed asset impairment charge recorded in Q1 2024. Free cash flow also saw a significant improvement in Q1 2024 versus the same period of 2023, as a result of our improvement in profitability, but also a more disciplined approach to working capital management. We believe it is important to understand the drivers of free cash flow in the first quarter. And in doing so, we need to put it in the context of our business seasonality. Coming out of positive reported free cash flow in the second half of 2023, the first quarter of 2024 shows a negative free cash flow of $6.4 million. We're encouraged by that result, which is ahead of our initial expectations for the quarter. As we know that it was impacted by both revenue and inventory seasonality. As you can see in the middle of the chart, on Slide 7, the first quarter always has by far the lowest level of sales in the year, which obviously has an impact on the level of profitability for this quarter. At the same time, as we can see in the right-hand side of page, we have historically seen retail inventory buildup in the first half of the year, particularly in the first quarter, following a reduction in the second half. 2024 is no exception, although we have limited this inventory build to only $5.8 million, a much smaller amount than in previous years. Within the pillar of profitability and financial discipline, one of our main goals for 2024 is to demonstrate our ability to deliver positive free cash flow within the year. The first quarter results gives us confidence we are on the right path for this. Looking into the first quarter results for the 3 operating segments, I would like to start with Liquor Retail. Net revenue in the first quarter of 2024 was $116 million, stable versus the same period of 2023. This is a good result considering the headwinds the liquor industry is facing, with many of our competitors and manufacturers seeing revenues decline. I would like to highlight the profitability improvement of this segment. Gross margin reached 25% in Q1 2024, a 220 basis point improvement compared to Q1 2023. This was achieved through multiple initiatives, including a 29% growth of our margin-accretive private label, procurement productivity and data sales monetization. As a result, this segment operating income delivered a positive $2.2 million, over $4 million improvement versus the same quarter of 2023. Moving to Cannabis Retail, we saw net revenue in Q1 2024 of $71.3 million, which is a 6% increase versus Q1 2023, mainly driven by double-digit growth in Ontario, as well as the expansion of our [indiscernible] products. Data sales are the main factor contributing to the 230 basis points of gross margin improvement for this segment, enabling a 17% gross profit growth compared to Q1 2023. Operating income was negative $1 million, impacted by a $2.5 million asset write-off, as previously mentioned. Finally, looking at our Cannabis Operations segment. This is where we see the largest and most knowledgeable improvements, both in terms of growth and profitability. In the first quarter of 2024, this segment delivered net revenues of $22.4 million, a 17% increase compared to Q1 2023. The highlights of this segment is clearly the improvement in profitability. Driven by an extensive productivity program, including the savings from the rationalization of our cultivation footprint, the segment posted positive gross profit of $3.2 million, an improvement of $12.7 million compared to Q1 2023. As a result, the gross margin of the segment improved from a negative 15% in Q1 2023 to a positive 14.4% in Q1 2024. And adjusted operating income was a positive $1.1 million compared to a loss of $18 million in the prior year. In summary, a very strong quarter with continued revenue growth, record gross margin and a significant improvement in profitability and free cash flow. We have an ambitious agenda in front of us to continue driving growth, improve profitability and leverage what we believe is our biggest asset, our people. The first quarter of 2024 has been encouraging for our team, knowing we're in the right path. Let's also keep in mind that at March 31, 2024, the company had $189 million of unrestricted cash, an additional $594 million in marketable securities and investments and no outstanding debt. With this, I would like to pass the mic back to Zach to share a few more operational highlights for the quarter.

[Zachary George, executive]

Thank you, Alberto. As we continue today's discussion, I want to reflect on the strategic priorities we set at the end of last year. We structured our approach around 3 core pillars: growth, profitability and people. Each of these pillars is fundamental to our long-term success. As Alberto mentioned, we have clear defined strategies within each to guide our actions and decisions. Starting with growth, our aim is to drive sustainable growth within our core market segments. In the first quarter of 2024, we've implemented several key strategies to enhance our market reach and deepen our operational capabilities. Through the first quarter, we opened a new Spiritleaf store in the coveted resort community of Whistler, BC and added a new Wine and Beyond store in Airdrie, one of the fastest-growing communities in Alberta. As mentioned earlier, we also expect to expand our presence in the BC market to Nova's acquisition of Dutch Lov retail locations.

We grew our liquor private label program by adding new offerings, specifically in the value segment and we continue to expand our innovations within our Cannabis Operations segment and we'll be introducing approximately 30 new SKUs in the coming weeks. Moving on to profitability. Our objective is clear: to achieve positive free cash flow for the aggregate 2024 calendar year. We have focused on optimizing our operations and reducing unnecessary expenditures and have established procurement efficiencies of approximately $10 million. We are currently in the midst of a strategic plan exercise and is expected to drive a further material reduction in corporate expenses. Through the closure of our facility in Olds, we have achieved approximately $3 million in cost savings. We have also generated approximately $4 million in data licensing revenue this past quarter, both from our Liquor and Cannabis Retail segments. We've made substantial progress in monitoring business performance and driving a culture of accountability. Looking forward, we are conducting a rigorous strategic planning exercise aimed at developing conviction around core competencies and capital priorities as well as a further reduction of operating expenses. We believe these actions will significantly improve our financial performance in the second half of the year. Lastly, our people pillar is about fostering a performance culture and developing talent across our organization. This quarter, we launched several initiatives aimed at enhancing employee engagement and alignment. These include investment in retention and succession plan. We have rolled out our strategic priorities and core behaviors across the organization, ensuring Unity. We will also launch a community engagement framework focused on mental and physical wealth. Our strategic priorities are not merely aspirations. There are actionable paths that we are pursuing with bigger. The progress we've made in the first quarter is a testament to our commitment to these goals. I am confident in our team's ability to maintain this momentum, and I look forward to sharing more about our achievements as the year progresses. We are excited about what lies ahead and are confident in our ability to deliver value to our investors and partners. Thank you for your continued support and belief in SNDL. I will now pass the call back to the operator for analyst questions.

[Operator]

[Operator Instructions] The first question comes from the line of Frederico Gomes with ATB Capital Markets.

[Frederico Yokota Gomes, analyst]

First question is just on the international cannabis opportunity. First, I was under the impression that you already had EU GMP Atholville. So could you just comment on that? And then in terms of the international opportunities that you have, how soon can they become more material in terms of your financials? And would you consider any M&A on that front?

[Zachary George, executive]

Frederico, thanks for the question. You're correct. So there were permits in place. Atholville is going through a repermitting process that we expect to be completed by the end of the summer. And we're not giving specific guidance on the growth of the export opportunity in Europe, but our team is heavily focused on it. We've received POs recently. And we are looking at a few opportunities where we may deploy capital into the region. But right now, we're really trying to assess the best and highest-quality export partners to work with.

[Frederico Yokota Gomes, analyst]

Perfect. And then still within Atholville, you mentioned you're ramping up cultivation there. So can you just remind us what's the capacity there and how much you're currently using up that? And then as well as, as you ramp that up, the impact to margins that you expect because you had a pretty good margin expansion this quarter. So do you think that, that can continue as you ramp up that production?

[Zachary George, executive]

Thanks. It's a great question. So yes, it's operating at less than 25% of capacity today. our President of Cannabis, Tyler Robson, has gone through a thorough reset on operations and SOPs in the -- with the cultivation team there. And we're very pleased with early results in terms of where our cash cost of cultivation are sitting. They're competitive, they're marginable. And as we ramp, we expect those costs to improve, but we're going to do so methodically and slowly to meet market demand.

[Frederico Yokota Gomes, analyst]

And then in terms of your distribution, you mentioned you secured an additional 350 distribution points after quarter end. So could you comment on where in terms of penetration right now, where you are at across different provinces, where do you see the opportunity here? And specifically in Quebec, do you have any presence there? And if not, is that a plan to enter that market?

[Zachary George, executive]

Yes. So thanks, Frederico. A few different elements of that question to unpack there. We have both inside and outside sales resources as well as data partnerships that assist in driving distribution. Our total aggregate distribution points are changing largely as a result of the shifts in independent store behavior over time. So I don't want to give direct guidance on that today, but we do expect improvements that should impact both our top line and gross profits. And then in terms of the second part of your question, can you just remind me?

[Frederico Yokota Gomes, analyst]

Yes. Just if you have any distribution in Quebec and if you plan to...

[Zachary George, executive]

Yes. In terms of provincial-based opportunities, I would say that we are punching below our weight in British Columbia, have a strong presence in Quebec, but are looking to improve it. And obviously, Ontario is a key market that we continue to make strides in.

[Operator]

The next question comes from the line of Jean Kang with Canaccord Genuity.

[Unknown Analyst]

This is John King on for [indiscernible]. So nice to see the sequential expansion in gross margin profile with improvements coming in from the Cannabis Operations side of things. In addition to all of the items that was mentioned as part of the prepared remarks, I was hoping to get some more color behind this. Now that most of the asset rationalization is completed in terms of cannabis cultivation footprint, is it fair to assume that this margin profile will at least be steady going forward? Would there be further variables in the future that could impact the cannabis ops margin?

[Alberto Paredero-Quiros, executive]

Yes. Thank you, [indiscernible], for your question. Actually, we have a very strong pipeline of additional productivity initiatives that should be kicking in as we speak and throughout the rest of the year. So we are still expecting improved margin profile in the following quarters. Obviously, the closure of the Olds facility that happened in the fourth quarter of 2023, that is already behind, it's fully embedded in the numbers in the first quarter. The ramp-up of the cultivation capacity in Atholville, it's underway. So that is going to be one of the elements of improved margins both side going forward, but we do have as well a long of productivity initiatives, automation initiatives in our 2.0 manufacturing capacity as well as overhead initiatives for reductions. So our plan is as well to continue seeing throughout the year, continuous margin improvement.

[Unknown Analyst]

And just another one for me here. Just want to ask [indiscernible] that you guys are essentially having with Nasdaq on the Schedule III news coming out of the U.S. I noticed previously telegraphed that you guys would be consolidating the financial results of Sunstream USA assets due to permit not being there. So I was wondering if there's been a change sentiment coming out of the exchange, now that the Fed news has been out for about a week or so.

[Zachary George, executive]

Just to be clear, you're asking if there is a change to NASDAQ related restrictions on the consolidation of -- or for the accounting of U.S. plant touching entities post the news on rescheduling?

[Unknown Analyst]

Yes.

[Zachary George, executive]

Okay. And the answer to that is no, that has not changed. And so we are working towards the close of the restructurings that are underway in the cases of both Parallel and Skymint in the U.S. But as those close and those closings are really waiting on license transfer for the most part. Everything else is in order, and we were pleased to finally have NASDAQ completed its review, but we will not be engaging in plant-touching activities in the U.S. under our current structure, have no intention to do so. It's still today a federally legal business in the U.S.

And so we will be able to provide some information on value and delineate the capital structures for those entities as the restructurings close, but I would not expect their operating figures to be consolidated into our financials going forward.

[Operator]

Our next question comes from the line of Pablo Zuanic with Zuanic & Associates.

[Unknown Analyst]

Look, I also want to ask you about Sunstream USA, but let me just start with on another part first. When you think about the Canadian recreational cannabis market, despite acquisition of Valens in terms of market share, you're still not among the top 3. What are the aspirations there? And then how should we think about that over time?

[Zachary George, executive]

Thank you, Pablo. Our aspirations when it comes to the Canadian recreational cannabis market is to be a top 5 licensed producer and manufacturer of products, full stop. Now when you look at the trajectory of our business over time, you are right to point out that in certain cases the combination of legacy SNDL revenue with Valens, it appears that there has been some degree of revenue loss. I would point out that the move away from high-cost cultivation and manufacturing was an undeniably positive one for the business. We had revenue streams that were unattractive and that you would not want on a stabilized go-forward basis. So we are working on profitable growth, not growth at any cost. And you've seen that with -- in the case of some other LPs that are really prioritizing the top line above all else. We would rather it -- being slightly smaller with a more conservative posture means that we can run a more profitable organization, we'll do that, right? So we are making progress. You really have to look at the expansion of our -- not just our branded product distribution, but also our B2B activities and our goals should have us kind of a far cry of where we stand today.

[Unknown Analyst]

Understood. And then a similar question on your retail arm for cannabis in Canada. I mean, obviously, High Tide continues to make acquisitions. The cap was lifted in Ontario, right? That creates opportunities for more consolidation. We see FICA being very aggressive, right? They bought [indiscernible] Flower. How should we think about your strategy there? Is there still room to get back to the transaction with Nova? You do own 62% of it indirectly right now. I'm just trying to understand, is that a steady as it goes? Or what's the plan there for expansion on the retail side in cannabis?

[Zachary George, executive]

We continue to selectively expand the portfolio. We've tried to be as disciplined as possible. We've looked at distressed asset sales and portfolios of many shapes and sizes. I would say that the analysis has changed a bit as most provincial markets have reached a saturation point. And so the build versus buy balance has sort of flipped where a lot of the best real estate locations have been taken. And so we're seeing a lift off the bottom in terms of valuations and multiples that are being paid for high-quality retail locations. And we're unwilling to look at bottom quartile assets that, in other cases, competitors are sort of welcoming into their portfolio. So we do have a pipeline. We were not -- in Q1, obviously, we did not add a large number of locations. But that doesn't mean that we are standing still and it's very difficult to have these opportunities fit cleanly into individual kind of quarterly boxes to show sequential 90-day growth rates. So I would expect growth. We have, in terms of capital priorities, further investments in Cannabis Retail in addition to select international opportunities would be top of the list. So more to come there.

[Unknown Analyst]

But just to be clear, in the case of Nova, what's the plan there? I mean do you hold on to the 62%? Or do you try to do the transaction again? What can we expect there?

[Zachary George, executive]

We actually, with the Dutch Love transaction, our stake will increase beyond 62%. We are a strong sponsor of the vehicle. And are working to create value for all stakeholders in that instance.

[Unknown Analyst]

Okay. Understood. Look, just moving on to Sunstream, and I'll try to keep my questions brief there. But at present, it's a JV, but you Sunstream Bancorp, but you consolidate, I think, all of it, right? Now you said, once you equitize the loans, you will not consolidate the U.S. assets. So I'm just trying to understand what's going to change from a reporting point of view?

[Zachary George, executive]

Right. So Pablo, I think you're very well researched on both the Sunstream-USA structure and also a sort of cousin structure that has been put together in the case of Canopy USA. So the issue is that while those businesses are still federally legal, we cannot have directors and officers of SNDL at a Nasdaq-listed company, serving in similar roles at those subject companies. And when it comes to credit positions that get equitized. We actually cannot vote that equity or that would be seen as exercising influence of control over the vehicle. So you have that equity held in a series of structures that are ring-fenced from SNDL, where we have an exchangeable share and that exchange option can be exercised really only upon federal legalization.

[Alberto Paredero-Quiros, executive]

One thing on the accounting from Pablo. So we're not consolidating today, the financial statements of those operations from the U.S. and we're not going to plan to consolidate them in the future unless there is legalization to trigger an event. What we do have today, and that will be the same thing that we'll have in the foreseeable future. We do recognize the value of the asset from an investment perspective, which as you see in our financial payments, is CAD 560 million at the end of the first quarter. So we do have the asset, but we do not have the consolidation of the P&Ls.

[Zachary George, executive]

And Pablo, we understand that there is a desire from investors and analysts to see more delineation in that portfolio. And so as we quickly move towards the close of these restructurings, our intention is to provide a lot more granular detail on the portfolio itself as well as the pro forma capital structures on close for the restructured entities. And so we're going to, in the coming months, move through a significant shift in transparency when it comes to that portfolio.

[Unknown Analyst]

That would be very helpful. Can I just -- so do you have line of sight on when the restructuring will close in terms of timing? And does the litigation have to have been all settled for the restructuring to close and litigation pending, yes?

[Zachary George, executive]

Yes. I want to be careful with our statements here. Just to put this in context, Pablo, like in the case of Parallel, the restructuring efforts would have started in early 2022, okay? So you're looking at a process which, if these companies could have availed themselves of the U.S. federal bankruptcy courts, would have been resolved likely in a period of 3 to 5 months. And this has been a 2-year slog. You can imagine the friction cost with legal and other items that would correlate with that time line. And so there are a number of issues here that are not in our control. We wish that it was different. But really waiting on license transfers. And what we've seen in some states, we've received license transfers well ahead of schedule. We've been positively surprised. And in others, there has been delay, and it's taken more time. So our expectation right now is to be in a position to close these restructurings end of summer, early fall. But again, we're not in control completely with those time lines.

[Unknown Analyst]

Got it. And the last question, I think in the fourth quarter conference call, to my question, you said something like Parallel in Florida and the other states, Skymint in Michigan, were running well. Were funding their businesses that despite the financial challenges, things were fine. But I could make the argument that in the case of Parallel, they've been stuck at 45 stores for a while in Florida, where their competitors are expanding, especially now with the ballot coming up. So there could be a disadvantage, right?

So I'm just trying to understand, once the restructuring is completed, let's say, by the third quarter, how do you help those entities to raise capital? I mean you cannot fund them directly, but I guess if the restructuring has been finalized, they would be in a better position to raise capital on their own, but just some color there would be helpful just to understand the outlook of those businesses once the restructuring is done? That's all.

[Zachary George, executive]

It's a great question, Pablo, but I would actually -- the statistics and data that's available from the state of Florida specifically is actually quite helpful in this case. And what's remarkable has been in Surterra's case, the ability to maintain share and actually take share in a number of product segments despite the fact that they have not been aggressive in opening new doors. And so getting the house in order, so to speak, and improving operations has been the priority of those teams.

And when it comes to capital -- growth capital, which I think you're pointing to, they have the ability to source capital from a number of different parties, including SNDL in the future. And so we expect that there will be more to come on that front as well. But I wouldn't suggest for -- just to put this in context, 2 years ago, Parallel was a business that lost over $100 million. This year, we expect to be on the right side -- we effect the entity be on the right side of free cash flow breakeven. So you really can't overstate the magnitude of the turnaround that's happened. Is there more work to do? Yes. Is this structure difficult to manage? Yes. But there is a great opportunity. And to frame it in a negative light when you're looking at a player that's a top 4 operator in Florida. I'm not sure how that's a disadvantage in any way.

[Operator]

This concludes the Q&A session. I would like to turn the conference back over to Zach George for any closing comments.

[Zachary George, executive]

Great. Thank you. Thanks, everyone, for joining us today. We look forward to updating you on our progress in the near future.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.